The Marketing Alliance Announces Financial Results for Its Fiscal 2017 Fourth Quarter and Year Ended March 31, 2017

FY 2017 Fourth Quarter Financial Highlights (all comparisons to the
prior year period)

  • Total revenues were $7,348,410 compared to $7,552,004, due in part to
    decreases in commission revenue in the insurance distribution business
    and revenue in the family entertainment business
  • Operating income decreased to $838,688 compared to operating income of
    $879,297 in the prior year period
  • Operating expenses decreased to $2,194,979 for the fiscal 2017 fourth
    quarter as compared to $2,327,521 for the prior year period
  • Operating EBITDA (excluding investment portfolio income) was
    $1,044,148 compared to $1,157,946 in the prior year quarter
  • Net income for the fiscal 2017 fourth quarter was $746,445, or $0.11
    per share, as compared to a net income of $587,099, or $0.08 per share

FY 2017 Annual Financial Highlights (all comparisons to the prior
year)

  • Revenues decreased to $26,552,613, from $28,908,299 the previous year
  • Operating income was $516,592, compared to $1,006,593 for the prior
    year, mostly due to a decrease in gross revenues in the insurance
    distribution and construction businesses and increases in operating
    expenses due to the inclusion of a new family entertainment center
    opened in April 2016 in this fiscal year, and three stores for the
    full year as opposed to a partial year last year
  • Operating EBITDA (excluding investment portfolio income) was
    $1,484,142 compared to $1,923,192
  • Net income was $1,063,149, or $0.15 per share, as compared to net
    income of $312,542, or $0.04 per share
  • The Company’s Board of Directors authorized a $0.24 per share cash
    dividend for shareholders of record on November 29, 2016, paid on or
    about January 31, 2017, representing an increase of 14.3% over the
    previous annual cash dividend of $0.21 per share

ST. LOUIS–(BUSINESS WIRE)–The Marketing Alliance, Inc. (OTC:MAAL) (“TMA”), today announced
its fiscal 2017 fourth quarter and year ended March 31, 2017 financial
results.

Timothy M. Klusas, TMA’s Chief Executive Officer, commented, “We were
pleased with our financial performance during the quarter and fiscal
year. We faced many external challenges, such as an insurance carrier
ceasing sales of new life insurance and annuity policies and continuing
weakness in agricultural end markets due to low crop prices that caused
demand for our services to decline in the second half of the year.
Despite these factors and increased operating expenses from a new family
entertainment center, we were able to finish the fiscal year with an
increase in net income versus the prior year.

“Commission revenue in our insurance distribution was affected by
changes in carriers’ product portfolios, as carriers who have been
historically significant to our distributors altered their products or
even ceased selling new policies. For example, Genworth’s decision to
discontinue the sale of new life insurance annuity policies in March
2016 caused us to proactively adjust our deferred first year commission
estimates for Genworth during the fiscal 2017. For the twelve-month
period, the impact to operating profit of this adjustment on commission
revenues as well as distributor bonus and commission expenses was
approximately $90,000 for each quarter and $360,000 for the 2017 fiscal
year, as we have stated in prior quarters. As the fiscal year is now
complete, these adjustments are complete as this is the end of our 2017
fourth quarter. While we have initiated new carrier relationships such
as Pacific Life to attempt to provide additional product alternatives
for our distributors and their producers, with any new carrier
relationship there usually has been an adjustment period for our
distributors as they realign their sales efforts and become informed
concerning new product offerings. Despite the challenges of replacing a
long-entrenched carrier relationship, we commend our general agents and
their flexibility to support new offerings. We have continued to invest
in our capabilities to offer a multi-carrier digital platform for life
insurance applications, and continued to support this platform as a
means to help our distributors grow by finding new producers and making
their distribution operations more cost-efficient. Lastly, as we have
mentioned in previous quarters, we continued to be negatively affected
by the ongoing uncertainty regarding the Department of Labor’s Fiduciary
Rule in our annuity business.

“While overall weakness in the agricultural markets and crop prices has
affected our construction and land improvement business by reducing
farmer’s demand for our services, we were still able to grow our revenue
for the quarter and have actively worked to reduce expenses for the
quarter and fiscal year. We continued to pursue new projects outside of
our traditional crop yield-improvement projects, and have scheduled some
of these projects in subsequent quarters. While this business has not
performed according to our expectations in a normal operating
environment as evidenced by lack of revenue after the June quarter last
year, we feel that the pursuit of new business opportunities outside of
our traditional customer base could allow this business to be better
positioned once the agricultural end markets recover and could offer an
opportunity for our construction business to utilize its equipment more
consistently throughout the year.

“In regard to our family entertainment business for the fiscal 2017
year, we shifted our focus from opening new locations to working to
increase the profitability at our nine existing centers. This included
capital improvements at our facilities such as new games and more
attractive floor layouts, expense reduction efforts, and price changes
at some of our locations. We felt in some cases we may not have attained
the ideal balance between customer value and price changes, and are
assessing these price changes to try to capture more revenue. In the
months ahead, we intend to focus on growth and continued cost reduction
through better relationships with vendors, improved inventory management
and increased control of labor.”

Fiscal 2017 Fourth Quarter Financial Review

  • Total revenues for the three-month period ended March 31, 2017, were
    $7,348,410, as compared to $7,552,004 in the prior year quarter. The
    decrease in total revenue was attributable to decreases in both
    commission revenue and family entertainment revenue for the
    three-month period.
  • Net operating revenue (gross profit) for the quarter was $3,033,667
    compared to net operating revenue of $3,206,818 in the prior-year
    fiscal period.
  • Operating expenses decreased slightly for the fiscal 2017 fourth
    quarter to $2,194,979 as compared to $2,327,521 for the prior year.
  • Operating income was $838,688, a slight decrease compared to $879,297
    as reported for the prior-year period, due primarily to a decrease in
    total revenues that was offset by reduced operating expenses.
  • Operating EBITDA (excluding investment portfolio income) for the
    quarter was $1,044,148, as compared to $1,157,946 in the prior-year
    period. A note reconciling operating EBITDA to operating income can be
    found at the end of this release.
  • Investment gain, net (from investment portfolio) for the fourth
    quarter ended March 31, 2017 was $412,977, as compared to $149,219, in
    the prior year quarter.
  • Net income for the fiscal 2017 fourth quarter was $746,445, or $0.11
    per share, as compared to a net income of $587,099, or $0.08 per share
    for the prior year period. Net Income was positively impacted by an
    Investment gain of $412,977 for the quarter as compared to $149,219
    for the prior year period.

Fiscal 2017 Financial Review

  • Total revenues for the year ended March 31, 2017 decreased to
    $26,552,613 from $28,908,299 in the prior year period. Revenues in the
    Family Entertainment business increased while revenue decreased in the
    Construction business and in the Insurance Distribution business.
  • Net operating revenue (gross profit) was $9,239,376, which compares to
    a net operating revenue of $9,109,952 in the prior-year fiscal period.
  • Operating expenses increased to $8,722,784 for the 2017 fiscal year
    when compared to $8,103,359 for prior year period due, in part to
    increases in rent and occupancy expense (approximately $440,000)
    relating to the addition of new family entertainment centers coupled
    with increases in depreciation and amortization expenses
    (approximately $250,000) versus the prior year period.
  • Operating income for the fiscal 2017 year was $516,592 compared to
    $1,006,593 for the prior-year period. The decrease in operating income
    for twelve-month period was partially due to a decline in the
    Company’s commission and construction revenues for the 2017 fiscal
    year, which was partially offset by an increase in revenue for TMA’s
    family entertainment business.
  • Operating EBITDA (excluding investment portfolio income) for the year
    ended March 31, 2017 was $1,484,142 versus $1,923,192 in the
    prior-year period. The decrease in Operating EBITDA for the fiscal
    year ended March 31, 2017 was the result of a decrease in operating
    income. A note reconciling operating EBITDA to operating income can be
    found at the end of this release.
  • Investment gain, net (from investment portfolio) for the year ended
    March 31, 2017 was $1,324,211 as compared to an investment loss of
    ($300,078) for the prior year period. Of the investment gain, net for
    the twelve months ending March 31, 2017, approximately $969,560 was
    unrealized, $257,485 was realized and the balance was interest and
    dividend income and investment management fees. For the prior year
    period net investment loss of ($300,078), unrealized losses were
    approximately ($245,881) and realized losses were approximately
    ($148,759) with the remaining balance being interest and dividend
    income and investment management fees.
  • Net income for the year ended March 31, 2017 increased to $1,063,149,
    or $0.15 per share, compared to $312,542, or $0.04 per share, in the
    prior-year period. Net Income was positively impacted by, as noted
    above, an investment gain of $1,324,211 for the 2017 fiscal year as
    compared to an investment loss of ($300,078) for the prior year
    period, which offset a decline in operating profit.

Balance Sheet Information

  • TMA’s balance sheet at March 31, 2017 reflected cash and cash
    equivalents of approximately $4.5 million, working capital of $10.4
    million, and shareholders’ equity of $10.8 million; compared to $5.5
    million, $10.5 million, and $11.4 million, respectively, at March 31,
    2016.

About The Marketing Alliance, Inc.

Headquartered in St. Louis, MO, TMA operates three businesses. TMA
provides support to independent insurance brokerage agencies, with a
goal of providing members value-added services on a more efficient basis
than they can achieve individually. The Company also owns an earth
moving and excavating business and nine children’s play and party
facilities. Investor information can be accessed through the shareholder
section of TMA’s website at: http://www.themarketingalliance.com/shareholder-information.

TMA’s common stock is quoted on the OTC Markets (http://www.otcmarkets.com)
under the symbol “MAAL.”

Forward Looking Statement

Investors are cautioned that forward-looking statements involve risks
and uncertainties that may affect TMA’s business and prospects. Examples
of forward-looking statements include, among others, statements we make
regarding our expectations for our performance during fiscal 2017 and
future periods and the production of favorable returns to shareholders,
the effects of reconciliation of distributor commissions on our
expenses, our ability to obtain new carriers and more economical and
faster ways for carrier products to be distributed, our ability to
diversify our earth moving and excavating business and increases in
revenue from our family entertainment business. Any forward-looking
statements contained in this press release represent our estimates,
expectations or intentions only as of the date hereof, or as of such
earlier dates as are indicated, and should not be relied upon as
representing our views as of any subsequent date. These statements
involve a number of risks and uncertainties, including, but not limited
to, expectations of the economic environment; material adverse changes
in economic conditions in the markets we serve and in the general
economy; future regulatory actions and conditions in the states in which
we conduct our business; pricing and other payment decisions and
policies of the carriers in our insurance distribution business, weather
and environmental conditions in the areas served by our earth moving and
excavation business, the integration of our operations with those of
businesses or assets we have acquired or may acquire in the future and
the failure to realize the expected benefits of such acquisition and
integration. While we may elect to update forward-looking statements at
some point in the future, we specifically disclaim any obligation to do
so.

Consolidated Statement of Operations
 
  Three-months ended   Twelve-months ended
March 31, March 31,
(Unaudited) (Unaudited)
2017   2016 2017   2016
 
Commission revenue $ 5,697,469 $ 5,807,217 $ 20,559,833 $ 23,242,027
Construction revenue 100,706 93,311 413,010 1,250,509
Family entertainment revenue 1,358,649 1,424,976 5,189,950 4,121,913
Other operating income   191,586     226,500     389,820     293,850  
Total revenues   7,348,410     7,552,004     26,552,613     28,908,299  
 
Distributor related expenses:
Distributor bonuses and commissions 3,647,899 3,437,885 14,216,912 15,862,934
Business processing and distributor costs 275,286 296,317 1,322,465 1,493,112
Depreciation   2,527     2,887     10,575     11,085  
Total   3,925,712     3,737,089     15,549,952     17,367,131  
 
Costs of construction:
Direct and indirect costs of construction 59,321 119,737 342,401 913,457
Depreciation   11,981     84,297     148,534     346,978  
Total   71,302     204,034     490,935     1,260,435  
 
Family entertainment costs of sales:   317,729     404,063     1,272,350     1,170,781  
 
 
Net operating revenue   3,033,667     3,206,818     9,239,376     9,109,952  
 
Operating Expenses   2,194,979     2,327,521     8,722,784     8,103,359  
 
Operating income   838,688     879,297     516,592     1,006,593  
 
Other income (expense):
Investment (loss) gain, net 412,977 149,219 1,324,211 (300,078 )
Interest expense (67,561 ) (50,436 ) (233,127 ) (168,951 )
(Loss) Gain on disposal of assets (577 ) (13,100 ) 23,537
Swap settlement (expense) income (8,926 ) (15,624 ) (49,267 ) (36,032 )
Interest rate swap, fair value adjustment 15,485 (71,569 ) 117,115 (97,177 )
Other Income               20,000  
 
Income (loss) before provision for income taxes 1,190,086 890,887 1,662,424 447,892
 
Provision for income taxes (benefit)   443,641     303,788     599,275     135,350  
 
Net income $ 746,445 $ 587,099 $ 1,063,149 $ 312,542
 
Average Shares Outstanding 7,028,233 7,028,233 7,028,233 7,028,233
 
Operating Income per Share $ 0.12 $ 0.12 $ 0.07 $ 0.14
Net Income per Share $ 0.11 $ 0.08 $ 0.15 $ 0.04
 
 
Consolidated Selected Balance Sheet Items
 
    As of
Assets 3/31/17   3/31/16
Cash & Equivalents $

4,538,393

 

$

5,535,256

 

Investments 7,719,319 5,802,222
Receivables 7,664,743 8,387,938
Other   1,230,189     1,325,135  
Total Current Assets 21,152,644 21,050,551
 
Property and Equipment, Net 2,629,719 3,088,588
Intangible Assets, net 1,316,807 1,502,004
Other   807,273     978,783  

Total Non Current Assets

  4,753,799     5,569,375  
 
Total Assets $ 25,906,443   $ 26,619,926  
 
Liabilities & Stockholders’ Equity
Total Current Liabilities $ 10,784,318   $ 10,561,554  
Long Term Liabilities  

4,330,766

   

4,643,386

 
 
Total Liabilities   15,115,084     15,204,940  
 
Stockholders’ Equity   10,791,359     11,414,986  
 
Liabilities & Stockholders’ Equity $ 25,906,443   $ 26,619,926  
 

Note – Operating EBITDA (excluding investment
portfolio income)

Q4FY2017 Operating EBITDA (excluding investment portfolio income) was
determined by adding Q4FY 2017 Operating Income of $838,688 and
Depreciation and Amortization Expense of $205,460 for a total of
$1,044,148. Q4FY2016 Operating EBITDA (excluding investment portfolio
income) was determined by adding Q4FY 2016 Operating Income of $879,297
and Depreciation and Amortization Expense of $278,649 for a total of
$1,157,946. The Company elects not to include investment portfolio
income because the Company believes it is non-operating in nature.

Fiscal 2017 year-end Operating EBITDA (excluding investment portfolio
income) was determined by adding FY2017 year-end Operating Income of
$516,592 and Depreciation and Amortization Expense of $967,550 for a sum
of $1,484,142. FY2016 year-end Operating EBITDA (excluding investment
portfolio income) was determined by adding Operating Income of
$1,006,593 and Depreciation and Amortization Expense of $916,599 for a
sum of $1,923,192. The Company elects not to include investment
portfolio income because the Company believes it is non-operating in
nature.

The Company uses Operating EBITDA as a measure of operating performance.
However, Operating EBITDA is not a recognized measurement under U.S.
generally accepted accounting principles, or GAAP, and when analyzing
its operating performance, investors should use Operating EBITDA in
addition to, and not as an alternative for, income as determined in
accordance with GAAP. Because not all companies use identical
calculations, its presentation of Operating EBITDA may not be comparable
to similarly titled measures of other companies and is therefore limited
as a comparative measure. Furthermore, as an analytical tool, Operating
EBITDA has additional limitations, including that (a) it is not intended
to be a measure of free cash flow, as it does not consider certain cash
requirements such as tax payments; (b) it does not reflect changes in,
or cash requirements for, its working capital needs; and (c) although
depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future,
and Operating EBITDA does not reflect any cash requirements for such
replacements, or future requirements for capital expenditures or
contractual commitments. To compensate for these limitations, the
Company evaluates its profitability by considering the economic effect
of the excluded expense items independently as well as in connection
with its analysis of cash flows from operations and through the use of
other financial measures.

The Company believes Operating EBITDA is useful to an investor in
evaluating its operating performance because it is widely used to
measure a company’s operating performance without regard to certain
non-cash or unrealized expenses (such as depreciation and amortization)
and expenses that are not reflective of its core operating results over
time. The Company believes Operating EBITDA presents a meaningful
measure of corporate performance exclusive of its capital structure, the
method by which assets were acquired and non-cash charges, and provides
additional useful information to measure performance on a consistent
basis, particularly with respect to changes in performance from period
to period.

Contacts

The Marketing Alliance, Inc.
Timothy M. Klusas, 314-275-8713
President
tklusas@themarketingalliance.com
www.TheMarketingAlliance.com
or
The
Equity Group Inc.
Adam Prior, 212-836-9606
Senior Vice
President
aprior@equityny.com
or
Terry
Downs, 212-836-9615
Associate
tdowns@equityny.com